Another Bazooka Against Black Money In India

Pranav Gupta, Author is a  4th Year  law student, Symbiosis Law School, NOIDA (written in the end of 2016)

The year 2016 is turning out to be a secret Santa for people around the globe. Christmas party had begun from the very first week of November when whole world went in to mental trauma that how Trump had actually conquered US Presidential elections, but very same day, PM Modi went a step ahead to put a cherry on top by performing the surgical strike on Black Money through the bazooka of Demonetization[1]. This had made both Modi & Demonetization a talk of the town. The step was taken to eradicate black money. After 8th of November 2016 (now could be jocularly celebrated as Death Anniversary of 500 & 1000 Rupee Note), now government is all set with another bombshell to grade out black money even from the graveyard.

Centre is fully loaded to crack down black money with another surgical strike through Benami transaction Amendment Act that it has recently nodded and put in force from a week before demonetization i.e. 1st of November 2016. Step has been taken to ‘Modi-fy’ the Indian economy from the curse of black money by confiscating Benami property. Already, the tax department has taken measures against two big recent disclosures[2] (Rs. 2 lakh crore[3] and Rs. 13000 crore) on the ground of Benami property. The modified new legislation will be known as Prohibition of Benami Property Transactions Act, 1988 (PBPT Act)[4].

What is Benami[5]?

In layman’s language, Benami means:

  • Property without the name
  • Held by Benamdar[6] (a person or a fictitious person, as the case may be, in whose name the benami property is transferred or held and includes a person who lends his name)
  • Person who actually paid does not mention his/her name
  • Generally done for the benefit of the person (beneficial owner) who actually pays for Benami property.

Property[7] under Benami transaction act includes every movable, immovable, tangible and intangible property.

But property under the same belonging to relatives, spouse, children, and parents through known source of income is valid. Similarly property held by a person in fiduciary capacity i.e. by trustee or a beneficiary will not be treated as Benami property.

Benami transaction is defined under section 4(9)[8] of the act, which states:

A. a transaction or an arrangement—

a) where a property is transferred to, or is held by, a person, and the consideration for such property has been provided, or paid by, another person; and

b) the property is held for the immediate or future benefit, direct or indirect, of the person who has provided the consideration, except when the property is held by—

i. a Karta, or a member of a Hindu undivided family, as the case may be, and the property is held for his benefit or benefit of other members in the family and the consideration for such property has been provided or paid out of the known sources of the Hindu undivided family;

ii. a person standing in a fiduciary capacity for the benefit of another person towards whom he stands in such capacity and includes a trustee, executor, partner, director of a company, a depository or a participant as an agent of a depository under the Depositories Act, 1996 and any other person as may be notified by the Central Government for this purpose;

iii. any person being an individual in the name of his spouse or in the name of any child of such individual and the consideration for such property has been provided or paid out of the known sources of the individual;

iv. any person in the name of his brother or sister or lineal ascendant or descendant, where the names of brother or sister or lineal ascendant or descendant and the individual appear as joint-owners in any document, and the consideration for such property has been provided or paid out of the known sources of the individual; or

B. a transaction or an arrangement in respect of a property carried out or made in a fictitious name; or

C. a transaction or an arrangement in respect of a property where the owner of the property is not aware of, or, denies knowledge of, such ownership;

D. a transaction or an arrangement in respect of a property where the person providing the consideration is not traceable or is fictitious;

Highlights of the Amendments

Under the given amended act, the roles of different four authorities to conduct inquiries or investigations regarding Benami transactions[9]:

  1. a) Initiating Officer: He can issue notice on suspicion and hold the Benami property for a period of 90 days from the date of notice.
  2. b) Approving Authority: Holding of property for more than 90 days is subject to approval of the approving authority.
  3. c) Adjudicating Authority: It examines the all documents, evidences and orders passed on the locus of the Benami Property.
  4. d) Administrator: based on the order of the adjudicating authority, administrating authority receive and handle the property (which may subject to certain conditions).

Formation of appellate tribunal[10]

  • It will hear the appeal aginst the order passd by adjudicating authortity.
  • All the appeals against the order passed by appelate tribunal wiil go to High court.
  • Maximum trime period for a case: 1 year from the last date of the month (when appeal is filed).
  • Appealate Tribunal consists of one chair & atleast two other members (one shall be judicial member & other shall be administrative member).

Penalty[11]

New act has enhanced the punishment for offences related to benami transactions. Section 53 of the act states that:

“Where any person enters into a benami transaction in order to defeat the provisions of any law or to avoid payment of statutory dues or to avoid payment to creditors, the beneficial owner, benamidar and any other person who abets or induces any person to enter into the benami transaction, shall be guilty of the offence of benami transaction”.

Before

Initially punishment for Benami transaction was 3 years of imprisonment or fine or both.

After (New Act)

Now whoever found guilty of the offence of benami transaction shall be punishable with rigorous imprisonment for a term which shall not be less than 1 year, but which may extend to 7 years and shall also be liable to fine which may extend to 25 per cent. of the fair market value of the property.

Upon furnishing false information about the benami property, person shall be liable for minimum imprisonment of 6 months which may extent to 5 years and 10 percent of the fair market  value of the property.


The prime objective of the Act  is to fetch out the unaccounted wealth in the economy and financial system, which was stashed.  Also, size the Benami property and prosecute &punish the offenders involved in it. It also aims to simplify the definition of Benami transaction. Changes made in the act will definitely extract some positive long-term impacts on real estate sector where majority of the Benami transaction was involved and consequently it would curb the issue of black money wrapped up in the real estate industry. This step will minimize corruption and it would increase the transparency, the risks would be minimized and transactions related to residential properties would get a considerable boost. It will also strengthen the confidence of lenders {banks or private individuals}. The stringent law would also bring down the prices of real estate because cash rich investors to park their unaccounted wealth in real estate do such transactions[12].

 

Photos: PixaBay

[1] Demonetization Is The Act Of Stripping A Currency Unit Of Its Status As Legal Tender. Http://Www.Investopedia.Com/Terms/D/Demonetization.Asp#Ixzz4tnnxhjju

[2] I-T dept searches premises of businessman Mahesh Shah who declared Rs 13,860 crore under IDS; http://indianexpress.com/article/india/premises-of-realtor-who-declared-rs-13k-crore-under-ids-searched/

[3]2 Lakh Crore Black Money Declared By Mumbai Family Under Investigation: Government; http://www.ndtv.com/india-news/rs-2-lakh-crore-income-declaration-by-mumbai-family-being-investigated-government-1633843

[4] – See more at: http://www.indianeconomy.net/splclassroom/315/what-is-benami-transactions-prohibition-amendment-act-2016/#sthash.SyO9lVry.dpuf

[5]Benami Transaction Prohibition Act And Its Impact On Law Relating To Property; http://racolblegal.com/benami-transaction-prohibition-act-and-its-impact-on-law-relating-to-property/

[6] Section 4(10) of  The Benami Transaction Act.

[7]Section 4(26) Of The Act.

[8]The Benami Transactions (Prohibition) Amendment Act, 2016 ; http://www.prsindia.org/uploads/media/Benami/Benami%20Transactions%20Act,%202016.pdf

[9] Article on Benami Transactions (Prohibition) Amendment Act, 2016 http://www.gktoday.in/iaspoint/current/benami-transactions-prohibition-amendment-act-2016/

[10]The Benami Transactions (Prohibition) Amendment Act, 2016 ; http://www.prsindia.org/uploads/media/Benami/Benami%20Transactions%20Act,%202016.pdf

[11] ibid

[12]Benami transaction analysis ; http://www.gktoday.in/iaspoint/current/benami-transactions-prohibition-amendment-act-2016/